Estate planning in Kentucky involves plans to manage your property, distribute assets with minimal tax consequences, plan for your health concerns and funeral arrangements, and provide for the financial support of your children.
Making a will
A will is an instrument that establishes your intent on how you wish your property to be distributed and can be revoked or modified during your lifetime. A will should include the following:
- Property distribution
- Provisions for children including a caretaker
- Executor of the estate
- Funeral arrangements
- Organ donations
If you die intestate (without a will), the state of Kentucky will appoint an administrator and distribute your assets according to the state's succession law that may not be as you intended.
Probate is a process that determines the validity of a will, settles all claims on the estate, pays estate taxes, sells off property to pay creditors and debts, and distributes the remaining assets to the heirs.
Even if a will is made, probate may not be avoided completely in some cases, especially in large estates. There are ways, however, to dispose of assets during your lifetime and avoid probate:
- Living trusts: These instruments transfer assets and title into a trust and allow you to name a trustee to manage the trust and its assets. Naming yourself as trustee initially gives you the same power to control your assets with the successor trustee taking over on your incapacity. The named beneficiaries receive the benefits of the trust after you pass away.
- Joint ownership: Joint ownership of property with a right of survivorship allows title to automatically pass to the surviving joint owner on your death.
- Accounts with designated beneficiaries: Any property with a title may have designated beneficiaries such as bank accounts, real property, cars and retirement accounts. A beneficiary may stretch the distributions of your account over a period of years to minimize tax consequences.
Special purpose trusts
A Totten Trust is an informal trust with a bank, credit union or brokerage firm known as a transfer-on-death account with a named beneficiary. A Crumney Trust allows gifts to children to be held in trust until they are of age while minimizing gift taxes.
Small estate exemption
Kentucky has a small estate exemption from formal probate for estates valued under $15,000.
Financial power of attorney
This is a legal document that delegates the handling of your affairs. Only a durable power of attorney takes effect immediately and continues in full force and effect if you become incapacitated. It is revocable at any time if you are mentally capable and on your death.
Also known as a health care directive, this document sets forth your wishes regarding health measures if you become incapacitated. Kentucky law has a provision for appointment of a health care surrogate to make medical decisions.
Power of attorney for health care
Consider a health care power of attorney for someone to make health care decisions for you, which is similar to a health care surrogate.
Additional planning considerations
Most individuals should have some of the above plans for distributing their estates, but there are other considerations:
- Estate taxes: Only very large estates valued at $5.25 million for 2013 are subject to estate taxes.
- Life insurance: Life insurance can be inexpensive and provide a valuable financial cushion if your children, spouse or other dependents need support in the long term. But if you have other sources of benefits like a pension, group life insurance or large IRA, it may be an unneeded expense.
- Business succession: Any business should have a prearranged method of distributing the business interests on your death or retirement to ensure its transfer. Corporations or family limited partnerships may enable the smooth transfer to children or to issue stock to minimize taxes.
Consult an estate planning attorney
State and federal estate law is subject to frequent changes. Consult a Kentucky estate planning attorney to ensure your assets are protected and that tax consequences are minimized.